Republican leaders have rebuffed President Barack Obama's demand for higher
income tax rates on America's top earners in their first detailed offer
during talks to stop the US going over the "fiscal cliff".

Mr Boehner proposed cutting public spending by $2.2 trillion (£1.36 trillion) over the next ten years while preserving all of George W Bush's income tax cutsPhoto: GETTY

After being "flabbergasted" last week by Mr Obama's own bold opening bid in the negotiations, John Boehner, the House Speaker, outlined a Republican riposte in a letter to the President on Monday.

Rejecting Mr Obama's call for higher rates on the top two per cent of earners, Mr Boehner proposed cutting public spending by $2.2 trillion (£1.36 trillion) over the next ten years while preserving all of George W Bush's income tax cuts.

The tax cuts are due to expire at the end of the year and coincide with with $600 billion in public spending cuts. Economists warn that the combination – the so-called "cliff" – could throw the US back into recession. Leaders in Washington are now thrashing out a plan to replace this arrangement while also reducing America's $1.2 trillion (£745 billion) annual budget deficit.

Mr Obama last week proposed raising $1.6 trillion (£1 trillion) in new tax revenue over the decade, with a package that included raising the top 35 per cent rate of income tax paid by households earning more than $250,000 ( £155,000) a year.

Dismissing the President's offer as "neither balanced nor realistic", Mr Boehner offered a short-term fix in his letter comprising $800 billion (£497 billion) in new tax revenue – half as much – that would come only from eliminating loopholes and tax deductions.

"The new revenue," Mr Boehner wrote, "would not be achieved through higher tax rates, which we continue to oppose and will not agree in order to protect small businesses and our economy".

The White House said Mr Boehner’s proposal “does not meet the test of balance” and would actually reduce income taxes for top earners. “Until the Republicans in Congress are willing to get serious about asking the wealthiest to pay slightly higher tax rates, we won’t be able to achieve a significant, balanced approach to reduce our deficit our nation needs,” said Dan Pfeiffer, Mr Obama’s communications chief.

Timothy Geithner, Mr Obama's Treasury Secretary, reiterated in interviews on Sunday that the President believed closing loopholes and deductions alone could not raise enough money, and that he would not sign any deal that did not lift tax rates on top earners – a key plank of his re-election campaign.

However in his letter, Mr Boehner said Mr Obama must compromise because November 6's result amounted to a "status quo election" in which Republicans also retained control of the House of Representatives.

He said rather than submitting a similarly uncompromising list of their own demands, the Republicans had based their plan on a proposal by a Erskine Bowles, a conservative Democrat who co-chaired a "supercommittee" that last year failed to agree on a plan to overhaul tax and spending.

The letter came days after Republicans derided the President's opening offer, which also called for $50 billion (£31 billion) in new stimulus spending. He said Democrats would accept $350 billion (£217 billion) in cuts to the medicare and medicare healthcare schemes.

Ruling out any new stimulus money, Mr Boehner called for $600 billion (£373 billion) in health spending cuts. Aides said some of this could be saved by raising the age at which Americans become eligible for medicare from 65 to 67.

The Speaker proposed cutting a further $600 billion (£373 billion) from other public schemes, and suggested welfare entitlements could be lowered by $200 billion (£124 billion) by changing the way government measures inflation. He also dismissed a plan by Mr Obama to strip Congress of its ability to limit the national debt.

Jim Kessler, senior vice president for policy at the Third Way think tank, said that even though the White House would reject most of the Republicans' offer the fact that a counter-proposal had been made should be taken as a sign of progress.

"This Republican offer is a slide-step in the right direction," he told the Daily Telegraph. "You've got two offers on the table and you can see a plausible way to get this done in a couple of weeks if these offers are real." Mr Kessler said it was likely the Republicans would be forced to accept a rise in tax rates but that they would be lower than the Clinton-era levels the White House is currently asking for.

He added that $1.2 trillion (£745 billion) in new revenues - the halfway point between the Republican and Democrat proposals - was the "magic number" around which an eventual deal was likely to be reached. The additional $400 billion (£248 billion) needed on top of the current Republican offer would probably come from a slight rise in tax rates, he said.